Overview
The year after California passed a landmark law to reach net-zero emissions statewide by 2045, it continues to be at the forefront of climate-related legislation. Governor Newsom has said he will sign SB 253, the "Climate Corporate Data Accountability Act," the nation’s first comprehensive greenhouse gas emissions disclosure requirement. It will require large corporations to report their greenhouse gas emissions. The bill faced intense opposition from business groups and we suspect litigation will be coming. The law will require that by January 1, 2025, the state implement regulations requiring companies and other business entities with total annual revenues in excess of $1 billion and that do business in California to publicly disclose emissions starting in 2026 and then annually thereafter.
The bill defines three classes of emissions – scope 1 ,2 and 3. That is where things get a little (more) complicated. “Scope 1 emissions” means all direct greenhouse gas emissions that stem from sources that a reporting entity owns or directly controls, regardless of location, including, but not limited to, fuel combustion activities. “Scope 2 emissions” means indirect greenhouse gas emissions from consumed electricity, steam, heating, or cooling purchased or acquired by a reporting entity, regardless of location. “Scope 3 emissions” means indirect upstream and downstream greenhouse gas emissions, other than scope 2 emissions, from sources that the reporting entity does not own or directly control and may include, but are not limited to, purchased goods and services, business travel, employee commutes, and processing and use of sold products. Confused yet? As you can see, Scope 3 is very broad and we expect litigation challenging what these terms mean. Unless revised, Scope 1 and 2 reporting is due by 2026 and Scope 3 reporting will be due in 2027.
Reporting companies are to follow international authority - the Greenhouse Gas Protocol standards and guidance, including the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard and the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard developed by the World Resources Institute and the World Business Council for Sustainable Development, including guidance for scope 3 emissions calculations that detail acceptable use of both primary and secondary data sources, including the use of industry average data, proxy data, and other generic data in its scope 3 emissions calculations.
This is an aggressive timeline and complicated by the plan for the state to apparently defer to international authority for determining enforcement. Whether the business community will go along with this is debateable. Moreover, giving the state about 15 months to create from scratch a state program and regulations for billion-dollar corporations based on complicated international protocols is wholly unrealistic, especially given the rule making process and stakeholder input required. That is separate from the challenge the state will face defending the law in certain litigation. Time will tell whether and how far this all goes, but we are not holding our (emission-regulated) breath for a quick resolution.
